Profit repatriation soars 237pc in eight months amidst economic upswing

KARACHI: Repatriation of profits and dividends on foreign investment has soared by 237 percent in the first eight months of the fiscal year 2023-2024, due to an improved economic outlook and a boost in foreign exchange reserves, facilitating the movement of capital out of the country, central bank data showed on Wednesday.

The State Bank of Pakistan data showed that the repatriation of profits and dividends on foreign investment in Pakistan surged to $759.2 million in July-February FY24, up from $225.4 million in the corresponding period of the previous year.

In February, foreign investors in the stock market and multinational corporations (MNCs) doing business in Pakistan repatriated $65 million in profits and dividends to their home countries. In comparison, only $5 million was repatriated in February 2023, while $127 million in earnings was repatriated in the month prior.

The profit repatriation on foreign direct investment increased to $703.7 million in July-February FY24 from $188.5 million during the same period of the last fiscal year.

During the eight months of the current fiscal year, $55.5 million in profits and dividends from portfolio investments was paid out, compared with $37 million in the same period the year before.

Over the last four to five months, there has been a rise in the repatriation of profits and dividends as a result of the central bank allowing foreign corporations to move foreign currency to their overseas headquarters due to an increase in foreign exchange reserves.

Pakistan's foreign reserves held by the SBP have increased significantly from a low of $4.4 billion in June 2023 to $8.2 billion as of March 15, 2024, showing an improvement in the country’s external position.

The smooth repatriation of dividends and profits by foreign investors will attract foreign direct investment and help rebuild investor confidence in Pakistan's economy. Accelerating the privatisation of state-owned enterprises (SOEs) will contribute to more foreign investment in the country and to increased earnings repatriation.

The government is preparing for talks with the IMF that are to take place next month regarding the extended fund facility, aiming to address economic challenges and potential reforms.

Pakistan's finance minister, Muhammad Aurangzeb, stated in a recent interview with a news channel that the local currency was stabilised largely because of the SBP and caretaker government's crackdown on currency smugglers and hoarders.

Concerning the IMF, he stated that discussions are underway for a larger and longer-term programme that prioritises stabilisation over growth. At the spring meetings in Washington, specific negotiations for the next bailout will begin, with the goal of reaching a staff-level agreement by June 2024. According to SBP data, the petroleum refining sector saw the largest profit and dividend outflow, totaling $126.4 million between July and February of FY24, as opposed to $0.2 million during the same period last year. The power sector repatriated $109.1 million in profits and dividends in July-February FY24, compared with $32.2 million a year ago.

The SBP data also showed that $104 million in profits and dividends were repatriated by the financial businesses, up from $18 million the year before.